Grinch

This should be fun.

2014 Public Finance Great Festive Debate

The Government Economics Network and Chair in Public Finance present:

THIS HOUSE BELIEVES THE CHRISTMAS EXTRAVAGANZA IS A WASTE OF TIME AND MONEY

Andy Williams reckoned “Christmas is the most wonderful time of the year.” Yet while a fine singer he was no economist and so at this event two teams will debate the lessons that economics provides on this season.

Speakers for and against include Eric Crampton, Head of Research, New Zealand Initiative;Patrick Nolan, Principal Adviser, New Zealand Productivity Commission;Bronwyn Croxson, Chief Economist, Ministry of Health; and Anne-Marie Brook, Principal Adviser, The Treasury

See our flyer for more information.

11 December 2014
3.00 to 4.00 pm followed by refreshments
G.02 and G.03, Ground Floor, MBIE, 15 Stout Street
RSVP by 4 December to Libby or call 04 463 9656

I didn't express a preference for either side on this one; I'm to be arguing in the affirmative. Since I'm contrarian, and since the horrible inefficiency of Christmas is now well-established, it would have been perhaps more fun arguing for the efficiency of Christmas. I'll endeavour to go a bit beyond the usual deadweight-cost inefficiency arguments in making the case against Christmas.

Explaining Daddy's day at work to the kids will be even more fun than usual come 11 December.

Previously: Coase and the Whos.

No, sir, I don't like it

Rob Hosking in The NBR:

The plain fact is, the country's security service got caught up in the political games of election 2011. Wilfully or accidentally, It became a political arm of the party in power and not, as it should be, a neutral government agency.
That is scary stuff.

Scary indeed. Read the whole thing.

Not entirely convinced that the government really ought to be rushing through stronger powers for the security apparatus until they've sorted out perhaps a few better control mechanisms preventing partisan use of the security apparatus.

Fixed costs in small countries

Yesterday's column over at Interest.co.nz hit on some of the ridiculous self-imposed fixed costs of government policy in New Zealand. A taste:

We could argue about the ridiculousness of the implementation of the New Zealand regime, or we could ask the more important question: why does this office [Office of Film and Literature Classification] exist at all? Why does a country of four and a half million people have an office for film classification when so many neighbouring countries, similar to New Zealand in culture and norms, already have their own systems? Every rating decision involves cost to the would-be distributor: the classification fee charged by the Censor’s Office, plus the hidden cost of the time, effort, and hassle involved.

In a better world, the government could simply require that programmes distributed in New Zealand carry the classification of any other trusted country’s ratings board: Australia, Canada, America, the UK, or others. It’s pretty rare that a locally produced film wouldn’t be intended for eventual international release; if the filmmaker weren’t already seeking an international classification, self-rating by the local producers could also work well.

Worse, when a body like the Censor’s Office exists, local industry can use it to try to block competitors’ imports.

Slingshot and other ISPs’ global-modes, allowing Kiwi customers to sign up for Netflix as though they were American, is just parallel importation applied to digital content. Local rights-holders supported the Censor’s Office attempts at blocking those services, with pious appeals to protecting the children from unrated content. We should properly see the Censor’s Office as a non-tariff barrier to trade in film and literature, which locals can exploit anti-competitively.

New Zealand has rather a few of these local fixed-cost-raising regulations. If you’re a doctor with a stellar reputation in Canada, you still need to go through New Zealand registration; that requires placement in a New Zealand hospital, and placements are limited. Would you, as a tourist in Canada, be at all worried about being treated by a Canadian doctor in a Canadian hospital? No. But that same doctor cannot move to New Zealand and set up a General Practice without jumping through the hoops.

Perhaps there could be reason for a short course training foreign physicians to recognise diseases prevalent here that aren’t as common elsewhere, but beyond that, the government’s increased the cost of medical services in New Zealand by imposing an unnecessary fixed cost on the system. Similarly, I simply cannot understand why building materials that have been deemed suitable for other wet and shaky environments, like Japan, British Columbia, or the American Pacific Northwest, aren’t simply deemed to be good enough for the New Zealand market as well.

Academic decline

I knew that the numbers of academics at U Canterbury had dropped. I didn't know that it was this bad. The Tertiary Education Union reports on the numbers:

Based on the change in proportion of FTC academic staff in 2014 compared to 2012 (column 3 of Table 3), the University of Canterbury was shifting academic staff at between two and six times the rate of the other universities, and on average 4.5 times the rate of the other universities. Substituting the change over the average employment of the period (column 2 Table 3), the University of Canterbury was shifting staff faster than all universities, as much as 32 times faster than AUT and on average 9.2 times faster than all other universities.

The TEU also notes that it isn't just the earthquakes but rather a re-focusing within the University: the proportion of full-time continuing administrative staff is up 16%. The number of administrators per academic has increased substantially as the number of academics has dropped.

They report also that the ratio of full-time continuing academic staff to all staff has dropped substantially since 2012: if my algebra isn't wrong and their numbers are right, it's about 40% of what it was.

Their figures look at the change since 2012. I know that the Economics Department was shedding staff very shortly after the September 2010 earthquakes: we lost two to Waikato really quickly. Those early shifts won't be in the TEU figures.

Kudos to the TEU for putting this out. As I understand things, they represent both academic and administrative staff; I never joined partially because of worries that they did a bit more to protect the general staff against restructuring than they did to emphasise the academic side. That they're now noting the decline in academic staff as proportion of staff is significant.

Eagle vs Whale

Whaleoil took aim at my former colleague John Gibson.

John received a Marsden grant for some work looking at the elasticity of soda consumption to soft drink taxes. When I saw that John had received the grant, I knew he had to be up to something really interesting, so I dropped him a note asking about it. He told me that a lot of current estimates of the effects of taxes on consumption are confounded by that we use data on total spending as a proxy for consumption, and where consumers can substitute down a price/quality ladder with an excise hike, total consumption may be rather more inelastic than we might have estimated from data based on a consumer's change in spending after a tax: what can look like a drop in spending after a tax hike could be a maintenance of ex ante consumption at a lower price point. Interesting stuff indeed. I hadn't blogged on it yet due to the busy. I wish I had hit it earlier now that I see Whale went after John.

I supposed Whale guessed from the project title that this would be another publicly funded attack on consumer freedom. John's project isn't that, as John later explained in a "right of reply" post. Good on Whale for posting it.

Police lobbying

Wellington Council's under fire for having consulted with bars when they were setting the Local Alcohol Policy.

Police are calling foul over a deal they say was struck between Wellington City Council and Hospitality NZ to allow the capital's bars to stay open later.

Internal council emails - obtained through court records this week - show many of the final details of the city's local alcohol plan were hammered out in a closed meeting with bar owners before it was opened to public submissions.

They also show the council and Mayor Celia Wade-Brown were in regular contact with local Hospitality NZ president Jeremy Smith, including consulting him on strategies for avoiding Government-imposed closing times.

The council has said it treated all "stakeholders" equally, and it also held meetings with police before the policy went out for public submissions.

It is understood police are upset about the industry's involvement in forming the proposed rules. During a hearing on the policy last week, a police lawyer said the council pushed a "deal" with the hospitality industry before the public had their say.

So do the Police reckon that nobody should be consulted in developing Local Alcohol Policies? Let's look back to Dunedin:

Much of the Dunedin City Council's plan seems to stem from the police, which proposed a range of bans from midnight including that on liquor shots.

Wellington's process seemed pretty inclusive.

Greg O'Connor notes that the move to local alcohol policies would enable more local lobbying from the Hospitality Association; I disagree with him on the net effect here. On alcohol, you have producer lobbies, bars, the Hospitality Association, retailers (supermarkets and bottle shops), local anti-alcohol activists, national health lobbyists, national anti-alcohol activists, local doctors, local police and the national police structure.

When policy is set nationally, the big producers can focus on one place: Wellington. It downweights the influence both of local pubs and retailers and of local anti-alcohol activists, but increases the influence of national-level lobby groups both for and against. It's harder for both local bars and for local activists to front at select committee hearings.

When it's set locally, it's harder for the large national lobby groups to hit all the different local policies; they'd instead only bother with the big cities or smaller ones that might form test-cases, unless they have unlimited resources to present at each local body. That downweights the producer lobbies, increases the influence of local retailers and bars, increases the influence of local anti-alcohol activists, reduces the influence of national health lobbyists except to the extent that they are called as police expert witnesses, increases the influence of local doctors and local police, and increases the influence of national police relative to national producer lobbies as the national-level policing lobby will back up their local officers.

On net, I think that tips things in favour of the pro-restriction side rather than the anti-restriction side. On evidence, that most Councils have pushed for earlier closing times than the national default also suggests that the antis have gained rather than lost influence.

That Wellington has considered things other than just what Police want doesn't really change that.

Disclosure: I was expert witness for the Hospitality Association on the effects of bar closing times.

Neighbourhood externalities

Adam Gurri provides a moral challenge to Paretean welfare economics.

All this only works if you think one preference is just as good as another, and maximizing preferences is a wonderful goal for a moral philosophy. I, for one, think that this is a terrible goal for morality, especially taken in isolation.

My favorite example of this model’s utter failure to provide a sufficient moral compass comes from the play A Raisin in the Sun. In it, an African-American family seeks to move to a predominantly white, affluent suburban neighborhood. You can probably guess where this is going: the people who already lived there did not want this family as their neighbors. From an economics point of view, the family was imposing an externality on their racist neighbors. What’s more, the real historical phenomenon of “white flight” in such cases actually reduced demand for housing in the neighborhoods that were being fled. As a result, the housing prices fell in the neighborhoods that African-Americans moved into, making the existence of a formally-defined externality undeniable.

I challenge the committed Pigovian to explain to me how this is anything other than a clear-cut externality, and how they can avoid the conclusion that their model would have them impose a tax on the African-American family. Moreover, libertarians aren’t in a much better position, morally. In A Raisin in the Sun, we get to see an actual Coasian bargain in action—-the white neighbors pool their resources to offer to buy out the African-American family from the house. Without spoiling the plot, I can’t say that the fact that this is a voluntary bargain inclines me to believe that the preference of the bargainers are on equal moral footing.

The philosophy of maximizing preferences does not distinguish between the family seeking the opportunity to rise above their circumstances and the racists who hate them.

While I'm more than happy to condemn the racist neighbours, I don't think the example provides that strong a case against standard economics.

The baseline is liberal: the African-American family is able to buy the house. The neighbours haven't been able to appeal to some notion of "neighbourhood character" to ban them from moving next door. Despite potentially high transactions costs, the neighbours were able to buy them out, indicating that their actual willingness to pay to be horrible racists was pretty high.

Gurri suggests that the main policy conclusion would be "tax the African-American" family; Coase reminds us that Pigovean externality-taxation solutions are not the only way of enabling Paretean welfare economics, and that the direction of the externality is always a bit up for debate. We could equally note the substantial negative externality the racists place on the incoming family and tax them for it. And in this case the Coasean solution obtained without any policy imposition: the neighbours bought out the incoming family.

I haven't read the play, but based only on the snippet above, I'd have written a Sylvester McMonkey McBean style conclusion: the outgoing family would tell their friends about these crazy racists who are willing to buy you out, at a premium, if you buy a house in their neighbourhood. Eventually, the entrepreneurs would drain the racists of any continued ability to pay for racism.

And while I'll agree with Gurri that any of us coming from particular philosophical perspectives will have sets of preferences that they view as better than others' preferences, having something other than a Paretean set-up for policy requires picking winners among competing values. Even leaving aside the substantial problems Cowen points to in his chapter on non-Paretean welfare standards, we have another simpler, but important, issue. In the play, the neighbours had to demonstrate a real willingness to pay for racism.

In the alternative, in which we move away from Paretean welfare economics, we need some voting apparatus to overturn willingness-to-pay and choice as basis for assessing whether a move has improved welfare. And racism is cheaper at the ballot-box than it is in the real world. It is far easier to imagine neighbourhoods being willing to vote for measures that would ban particular types of people from being able to buy houses, or lodging objections on notified consents, than it is to imagine their actually being willing to buy those people out. If actual willingness to pay is less than the amount necessary to change the outcome, then the externality is not Pareto-relevant.

I'd written on psychic externalities a few years ago:

I'm reminded of Jennifer Roback's work showing how southern racists were able to achieve at the ballot box segregation outcomes they were unable to achieve in the market. To recap: racist southern whites wanted segregated streetcars. But it was too expensive for the streetcar companies to run segregated cars: the increased ticket revenues from white racists didn't compensate sufficiently for lost black custom and, especially, increased running costs. White racists effectively weren't willing to pay enough for tickets to segregated streetcars, so the market didn't provide them. But casting a racist ballot is individually costless. And so streetcar segregation was mandated through regulation.

When I see folks going to the ballot box to enforce their preferences over other peoples' activities, my general presumption is that transactions costs isn't what's keeping meddlers from seeking less coercive options. The ballot box is just cheaper when a majority has weakly meddlesome preferences, regardless of efficiency.

Where illiberal preferences are weakly but broadly held, overturning the results of voluntary choice through use of a non-Paretean framework risks intervening to address externalities that are not Pareto-relevant, with greater illiberalism as result. If, on the other hand, illiberal preferences were very strongly held among a very well-heeled minority, results could flip.